A,C.I.T. CENTRAL CIR.- 2(1), NAGPUR vs. SHRI SURAJ V KAPSE, CHIMUR

LT.A. No.154/Nay/2016 Assessmcntyear :2007-08 4333 IN TKE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE SHRI P_ K: BANSAL, VICE PRESIDENT AND SHRI AMARJIT SINGH, JUDICIAL MEMBER LLANoL54Nag/2016 Assessment Year:2007-08 ACIT. Central Circle-2(1), Nagpur. Vs. Shri Suraj V. Kapse, Kapse Bhavan, Gurudeo Ward; Chimur, Dist; Chandrapur; PAN:ASXPK 8878 R (Respondent; (Appellant_ Appellant by Respondent by_ Date of hearing Date of pronouncement Shri A. R Ninave Shri K, P. Dewani 20/06/2017 23/06/2017 ORDER PERPKBANSALVP Ikr 3 This appeal has been filed by the Revenue against the order of CIT(A)-1, Nagpur dated 18/01/2016 by taking the following grounds af appeal: Whether 0n the facts and in the circumstances of the case, the Id. CIT(A) was right in deleting the addition of Rs.38,65,000/- made on protective basis ? {ii) Whether 0n the facts ad in the circumstances of the case; the Id, CIT(A) was justified in deleting the addition of Rs.38,65,000/- without appreciating the fact that the assessee has not executed any sub contract work and waS Only name lender ? (it) On the facts and in the circumstances of the case and in law; the Id CITIA) erred in ignoring the evidences found in the incriminating diaries which conclusively 33H 1:""No, 154/N2g/2016 Assessme year :2((7-03 proved that the cash withdrawals made from the bank accounts of the assessee were returned back and credited In} the incriminating diaries maintained by Bhangdiya Group: (iv) On the facts and in the circumstances Of the case ad in Iaw, the Id. CIT(A) erred in holding that sub contract work waS executed by the assessee ignoring the fact that the contract amount received from the Bhangdiyas was returned to them as evident from the incriminating diaries ad no expenses were incurred for executing the contract On the facts and in the circumstances Of the case ad in Iaw, the Id. CIT(A) erred in thwarting the very purpose of search ad seizure provisions Of the Act by ignoring seized incriminating documents In brief, the assessment year-wise detail, date of filing the return, returned income, assessed income, additions made and the section under which the orders were passed are given as under: Sr No. AY Date of filling Of Returned Relurn Incoine Assessed Inconie Scction Additions disputed 1 2007-08 10}09/2013 117482 3982482 153C 3865000 3 The facts of the case, in brief, are that & search & seizure action u/s 132 of the I.T. Act; 1961 was carried out in the Bhangdiya Group of cases on 19/07/2011, During the course Of search conducted at residential and office premises of Shri Mitesh Bhangdiya, certain incriminating papers and documents belorging to the assessee Shri Suraj V, Kapse were found and seized, Therefore, notice dated 16/07/2013 U/s. 153C of the IT. Act; 1961 was issued and served on the assessee on 17/07/2013 requesting him to file the return of income within 30 days fron the receipt of motice The assessee vide letter dated 10/09/2013 has raised an objection to the LT.A. No-ISA/Nag/ZU1G Assessmnent year :ZtH)7-08 35 notice issued u/s 153C which is reproduced in para 3 of the assessment order , The Assessing Officer has dealt with the objection raised by the assessee in para 4 of the assessment order by holding that rhough the search action uls 13201) was conducted in the case of Bhangdiya Group but there Is sufficient evidence available in the seized material which is incriminating and relates to the assessee The assessee however, had filed the returns of income in response to notice U/s 153C for all the vears of the block period. Shri Mitesh Gotumal Bhangdiva is the key person of the group: Shri Mitesh Bhangdiya has two sons namely Shri Kirtikumar M. Bhangdiya and Shri Srikant M. Bhangdiya and one daughter Neha. The business of the Bhangdiya group i5 being looked after by Shri Mitesh Bhangdiya and his two sons. The other key persons associated with the group are Shri Sanjay Rameshchandra Heda, husband of Mitesh Bhangdiya's sister, Smt: Pradnya, resident of Amravati and Smt: Manisha 0. Maniyar _ widowed sister of Shri Mitesh Bhangdiya who lives with Bhangdiya family. The main business concerns of the group covered under the search action are a5 under: 1 Ms M.G. Bhangdiya (AERPB 2503 E) (Prop MGB) converted into a company Ms M.KS. Constro-venture Pvt; (AAHCM 0383 T) Ltd. from 01/04/2011 Mahendra Construction, Prop. Shri Sanjay Keda (MC} (AADPH 7109J) Ms Mahendra Construction & M.G. Bhangdiya (JV) (AANFMS658B} Ms Kirtikumar M Bhangdiya (Prop. KMB); canverted into a company M/s MRS Acme Buildcon Pvt. Ltd, (AAHCMO3BZR) from 01.04.2011. (AGYPB1659G) MJs RM. Bhangdiya & Mahendra Construction (JV) (AARFR182OC) Ms Shrikant M Bhangdiya (Prop SMB) (ATCPB1337J) Mitcon Infraproject Pvt. Ltd, (MIPL) (AAGCM1868H) MITZ Infraproject Pvt. Ltd. (AAGCM3OATA) Sakshi Gruh Nirman Pvt Ltd. (SGNPL) (AAOCS7974G) PFl 2 2 9 3 4 5_ 6_ 7 8 9_ 736 1.A. No.154/Nag/2016 Assessmnent year ;2007-(8 10. Balaji Stone (AADCB5273C) Crusher Infraventure Pvt. Ltd:. also entered into joint ventures with various The Bhangdiva Group has other civil contractors. Some of them are as under: 1 M.G. Bhangdiya Hitbhav Engg; (JV) Ms: (AAOFM4745L) Ms: M.G. Bhangdiya & S.s: Patil & Co. (JV) (ABIFS3645L) Ms Darshan Construction (JV) (AAHFDO6SAN) Ms; MR Dhoble & R.M. Bhangdiya (JV) (AAPFMO62ZB) 2. 3 4 The nature of the business of the Bhangdivya group primarily Is executing civil contracts. The group works mainly for Government departments like Ms Vidarbha Irrigation Development Corporation and has been engaged in executing various contracts pertaining to the irrigation projects in the state of Maharashtra_ During the cqurse of search operations incriminating were found and seized from the residential premises of Shri documents Item no: 1 to 65 of Annexure-B seized from his Mitesh Bhangdiya_ residence are the diaries containing ledgers; daily cash baoks and bank books maintained by the Bhangdiya grOup. A statement of Shri Mitesh was recorded on Qath on 20.07.2011. In his sworn statement Bhangdiya recorded during the course of search action, Shri Mitesh Bhangdiya was confronted with the entries borne out from the seized diaries marked as B to explain the contents of these diaries. Shri Mitesh 1 ta B-65 and Bhangdiya in his statement recorded has submitted that the entries in the pertain to the business receipts and business diaries and the ledger expenditure The Assessing Officer in the assessment order has recorded 3 finding that as per the item no, 1 to 65 of annexure-B; It is apparent that the amounts withdrawn from the bank accounts of the subcontractors were credited to the daily cash balance of Bhangdiya group which was confirmed Bhangdiya in his statement dated 14/09/2011, The by Shri Mitesh 6. RPELL [K.A No.l54/N:6/2016 (3z7 Assessineut yCar :2007-08 rz2 Assessing Officer has reproduced the statement of Shri Mitesh Bhangdiya recorded on 14/09/2011 in para 6 of the assessment order. The Assessing Officer in the assessment order has also recorded & finding that the seized documents being B-l to B-65 contain entries of all expenses Incurred by the Bhangdiya group in cash from F.Y, 2006-07 onwards and expenses incurred through the bank accounts from F.Y. 200g-10 onwards; Thus, the Assessing Officer found that the actual expenses incurred do not match with those shown to have been incurred in the books. The Assessing Officer thus concluded that the books of account of Shri M.G. Bhangdiya maintained for income-tax purpose do not reflect the true business affairs and are not at all reliable; The Assessing Officer has als0 referred to the statement of Shri Suraj V. Kapse, the assessee; recorded on 19/07/2011 during the course of survey at Camp, Chimur. Based on the statement of Shri Suraj V. Kapse, the Assessing Officer has concluded that the bank accounts Of the assessee were being handled by Shri M,G. Bhangdiya group; The Assessing Officer has given a summary of all the bank accounts maintained by the assessee in the tabular form tO show that the cheques deposited by the Bhangdiya group in the bank accounts of the asSessee were subsequently withdrawn in cash which were found credited to dally cash book seized. On this basis the Assessing Officer made the protective addition in the hands of the assessee holding that there were na expenses Incurred and no contract work was executed by the assessee who, according to the Assessing Officer , is merely a name lender to the Bhangdiva group The assessee came in appeal before the CIT(A) challenging the notice issued Ws 153C as well as the addition for cash withdrawals from bank on protective basis, The CIT(A) deleted the said addition: Jm 338 1.T,4, No.15A/Nag/2016 Assessmenlt year .2007-08 3.1 At the outset; learned A. R. made an application before u5 under Rule 27 of the T.T.A.T. Rules challenging the validity of the notice Issued u/s 153C of the Act aS there was no incriminating material belonging to the assessee found in the course of search; It was stated that the assessment in the case of the assessee was framed uJs 153C read with section 143(3) of the Act; The assessee before the CIT(A} raised ground No. 1 and challenged the validity of the notice issued u/s 153C of the Act; The CIT(A) has dismissed the ground challenging the validity of the notice issued u/s 153C and decided the appeal of the assessee on merit due to which protective addition made in the hands of the assessee stand deleted. Under these facts, the assessee did not file any appeal Or the Cross Objections taking the ground a5 regards to the validity of the notice ufs 153C of the Act It was contended that there is no incriminating material found and seized belonging to the assessee in the course of the search at the premises of Shri M.G. Bhangdiya. It was submitted that in the case of the assessee no satisfaction of the Assessing Offilcer of the person searched is recorded before issue of notice uJs 153C. In absence of non recording of the satisfaction by the Assessing Officer of the person searched, the consequent assessment framed is bad in law and the notice issued u/s 153C is bad in Iaw. Reliance was placed in this regard o the decision of ITAT Nagpur Bench in the case of Mansi Commodities Ltd. in I.TANos: 146 to 148/Nag/2014 in which the Tribunal vide order dated 19/12/2016 held that satisfaction for issuance of notice U/s 153C Is to be recorded by the Assessing Officer of the person searched ad in the absence thereof the notice issued Ws 153C is bad in Taw and consequent assessment framed is bad in law. 4 Learned D R on the other hand, vehemently relied on the order of the CIT(A) and contended that the assessee has taken ground No 1 about 9 1.T.4, No,1S4/Nag/2016 Assessmnent ye:t :2007-08 339 the validity of the issuance of notice u/s 153C before the CIT(A) but the assessee did nct press this ground before the CIT(A): Even no submissions were made for which our attention was drawn towards para 12 of the order of CIT(A): Even otherwise on merit the assessee contended that the diary seized during the course of search contains the name of the assessee from whom the cash has been received noted in the diary. Therefore; it cannot be said that incriminating material belonging to the assessee was not found: 5 We have heard the rival submissions, carefully considered the same along with the orders of the tax authorities below: Coming to the adjudication and admission of ground taken by the assessee about the validity of the rotice issued u/s 153C ard consequently cancellation of the assessment framed thereupon, we have gone through Rule 27 of the ITAT Rules. We noted that the said Rule read a5 under: "The respondent; though he may not have appealed;, may support the order appealed against 0n any Of the grounds decided against him; Mi 5.1 On the basis of this Rule; it is apparent that even if the assessee has not filed the appeal against the order of CIT(A); he may support the conclusion of the CIT(A) by taking ay ground which has been decided against him. From the facts before US, it is apparent that the assessee has taken the ground regarding the validity of the notice Issued u/s 153C before the CIT(A) and also validity of consequent assessment framed thereupon: We noted that CIT(A) under para 12 of its order dismissed the said ground of the assessee as the assessee neither filed ay submission nor pressed this ground during the appellate proceedings. Whatever may be the reason, the fact remains that the ground taken by the assessee about the validity of the notice uls 153C and also the validity of the zhe ITANo.154/Nag/2016 Assessmentyear :2007-08 consequent assessment framed thereupon stands dismissed by the CIT(A): Therefare; in our opinion, the assessee complied with the condition as stipulated under Rule 27 of the ITAT Rules an the assessee can always raise this ground in view of Rule 27 before the Tribunal: The Tribunal has the power to adjudicate the ground taken under Rule 27 . We accordingly admit the said ground: 5,2 Now coming to the submissions made by both the parties on merit on this ground, We have gone through the provisions of section 153C and noted that this section prior to the amendment made by the Finance Act; 2015 with effect from 01/06/2015 states as under: "Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 a section 153, where the Assessing Officer is satisfied that any money, bullion, jewellery or Other valuable article or thing, Or books of account or documents; seized Or requisitioned, belongs ar belong to a person other than the person referred to in section 153A, then the books or account or documents Or assets seized Or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person. This section has subsequently been amended bv Finance Act, 2015 with effect from 01/06/2015. The amended section reads a5 under: "153C Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 &nd section 153, where the Assessing Officer is satisfied that C (a) Any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; Or (b) Any books Of account Or documents; seized Or requisitioned, pertains or pertain to, or any Information contained therein; relates to; a person other than the person referred to in section 1534 then, the books of account or documents Or assets, seized or Qni i.TA.No.154/Nag/z016 Assessmentyear :2007-08 3ki requisitioned shall be handled over to the Assessing Officer having jurisdiction over such other person. The Finance Bill, 2005 in its memorandum explaining the purpose for which this amendment was made reads as under: "Section 153C 0f the Act relates to assessment of income of any other person: The existing provisions contained in sub- Section (1) Of the said Section 153C provide that notwithstanding anything contained in section 139, section 147, Section 148, section 149, section 151 ad section 153, where the Assessing Officer is satishied that anv Money; bullion jewellery or ther valuable article or thing or books Of account or documents seized or requisitioned belong t any person; other than the person referred to in section 153A, then the books Of accouint or documents 0r assets seized or reguisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person ad that Assessing Officer shall proceed against ead such ather person and iSsue such other person notice ad asse55 Or reassess income Of such Other person in accordance with the provisions Of sectian 1534. Disputes have arisen, 35 tp the interpretation of the words "beiong5 to" in respect of a document as for instance when 3 given document seized from < person is & COpy of the original document Accordingly, it is proposed to amend the aforesaid Section to provide that notwithstanding anything cantained in section 139, section 147, section 148, section 149, section 151 ad section 153, where the Assessing Officer is satisfied that any money, bullion, jewellery Or other valuable artidle Or thing belangs to, Or any books Of account Qr dacuments seized Or requisitioned pertain to; Or any inforrnation contained thereim, relates to, any person other than the person referred to In section 1534, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over Such other person and that Assessing Officer shali proceed against each such other person and issue such other person notice &nd assess or reassess income af such other person in accordance with the provisions of section 153A 3h E.T.A. No.154/Nag/2016 Assessmnentyear :2007-08 Subsequently, the CBDT has brought Oul Circuiar No; 19 of 2015 dated 27/11/2015 by whichi explainatory nale Lo th provision of Finance Act; 2015 were discussed. The expiainatory note in thc circular relating to the amendled provision) Ol Section 153C read d5 Uder: "39, Assessment of income Of & person other than the person in whose case search has been initiated or books of account; other documents Or assets have been requisitioned, 39.1 Section 153C Of the [ncorn-tax Act relates to assessment of incomie Of ay person Other than the person in whose CaSe search has been conducted Or requisition has been made The provisions contained in sub-section (1) of the section 1530, before amendment made by the Act provided that notwithstanding anything Contained in section 139, section 147, section 148, Section 149 section 1S1 and section 153 or the Income-tax Act; where the Assessing Officer {5 satisfied that ay money; bullion, jewellery or other valuable artickz or thing or bopks Of account or documents seized Or requisitioned belong to any person}; other than the person referred to in section 1534 Of the Income-tax Act; ther the books Of aCcount Or documents Or assets seized Or requisitioned shall be handed over to the Assessing Officer having Jurisdiction over such other person and that Assessing Officer shall proced against each such other person and isSue notice and assess Or reassess income Of such Other person in accordance Iith the provisions of section 1534, 39.2 Disputes have arisen 35 to the interpretation of the words "belong to in respect Of & document &5 for instarce when 3 given document seized from & person is & copy of the original document: Accordingly , section 153C has been amended S0 as to provide that notwithstanding anything contained in section 139, section 147, sectian 148, section 149, section 151 and section 153 0f the Incore-tax Act; where the Assessing Officer is satisfied that any money , bullion, jewellery ar other valuable article Or thing belongs to, or any books Of account or documents seized Or requisitioned pertain to; Or any information contained therein; relates to, any person; other than the person referred to In section 153A f the Income-tax Act; then the books Of account 0r documents Or assets seized Qn LTA NoZ54/Nag/2016 1! Assessmentyear :2007-08 3h3 Or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person ad that Assessing Officer shall prceed against each such other person and issue notice and assess Or reassess income Of such other person in accordance with the provisions Of section 1534. 39.3 Applicability: This amendment has taken effect from the Ist day of June; 2015, 5.3 In vjew of this, it i5 apparent that the amended section 153C are not retrospective an are applicable With effect from 01/06/2015 and not prior to that, In the case of the assessee,; search as well as notice us 153C has been issued prior 'ta 01/06/2015, Since In the case of the assessee action u/s 153C has been taken by issuing the notice dated 16/07/2013 in consequence of the search carried out on 19/07/2011 therefore; the amended provisicn of section 153C will nct apply. As per the provision of section 153C, as was in existence during , the impugned period, the condition precedent for issuing notice us 153C and assessing Or reassessing the income of 'such other person' is that the money, bullian; jewellery or other valuable article or thing; books of account or document seized Or requisitioned which belong to such person where documents in question recovered during search proceedings did not belong to the assessee, though there was a reference to the assessee therein; issue of notice to the assessee uJs 153C, in our opinion, cannot be held to.be valid. Hon ble Delhi High Court in the case of Pepsi Foods Pvt: Ltd_ vs, ACIT 52 Taxman com 220 (Del); we noted has also categorically held that before a notice U/s 153C can be issued, the Assessing Officer is required to arrive at a conclusive satisfaction that the document belongs & person other than the searched person. Unless until it is established that the documents seized did not belong ta the searched person; te provision of section 153C did not get attracted. This is not disputed that the notice in the case of the assessee uls 153C has been issued in consequence of search & seizute L.T.A No.l54/Nag/2016 Assessment year :2007-QR 12 action taken U/s 132 in the Bhangdiya Group from whom premises diaries marked 3-1 to B-65 were found and seized: These diaries belong to the Bhangdiya Group not to the assessee_ Even though the name cf the assessee is mentioned in the diary that does not Mean that the diary belong to the assessee, It may be said that the diary contains the information regarding the assessee In our opinion, even the amended provision supports the case of the assessee The Legisiation has amended section 153C with effect from 01/06/2015 and widened the scope U/s 153C by substituting in place of word 'belongs Qr belong' to word 'pertain Or pertain to or any information contained therein' , Now under the amended provision, even if the material seized does not belong to the assessee but it contains the information relating to the assessee, the proceedings initiated "js 153C will be valid: But this amended provision; as is apparent; is applicable from 01/06/2015. Learned DR_ before us even though vehemently retied n the order of the Assessing Officer but could nat adduce any cogent material or evidence which may prove that the diares found and seized during the course of search in Bhangdiya Group belong to the assessee_ Since during the course of search in Bhangdiya Group n material relating to the addition made belonging to the assessee was found therefare; the notice issued ujs 153C, in our opinion, cannot be regarded to be valid one; Same_view has_been_taken by Hon'ble Bombay High Court in the case of Bharti Vidyapeeth in ITA No. 923 of 2012 vide its order dated 11/09/2014. This fact also finds support as the Revenue has made the addition in the hands of the assessee in each Of the assessment year only on protective basis which proves that the Revenue was also not satisfied with the incriminating material in fact belong ta te assessee; On this basis we set aside the order of CIT(A) and hold that the notice issued u/s 153C is not valid and in consequence thereupon; the assessment made is annulled: Thus, the ground taken by the assessee under Rule 27 is allowed. LTA NuLS4/N;8/2016 {71 3hs Assessmentyear:2007-OR 6_ Now coming to the ground taken by the Revenue We have heard the rival submissions, carefully considered the same along with the orders of the tax authorities below. We noted that the Assessing Officer has made the addition in the case of the assessee on protective basis in respect of the cash being shown as receipt in the diary seized during the course of search in Bhangdiya Group: When the matter went before the CIT(A), the CIT(A) deleted the said addition years by observing as under: "9.1 Before adjudicating the issue in hand, it wpuld be relevant to briefly discuss the background of additions made in the case Of Shri Mitesh G. Bhangdiya & Group concerns On the basis of seized evidences as per Annexure-8-I to B-65, The Ld AO has made the total addition of Rs.182.52 Crs in the hands Of various concerns of Bhangdiya group in various assessment years falling within the block period on prorata basis for want of proper correlation between the amounts credited to the seized diaries a the withdrawals made from the bank accounts of the sub-contractors: Out of the total addition of Rs.182,52 crores, an addition of Rs.54.40 Crs. has been made On account af entries of withdrawals from the bank account of sub-contractors recorded in the seized diaries In proportion to the cheque payments made to the Sub- contractors by various entities of the Bhangdiya group. The various concerns Of the Bhangdiya group had made the payments by account payee cheques to the sub-contractors, The Ld AO after analyzing the bank accounts of 21 sub- contractors out Of total more than 100 sub-contractors has arrived at the conclusion that the cash withdrawn from the accounts of the subcontractors has been found deposited on the credit side of the seized diaries marked a5 Annexure B-1 to B-65 seized from the premises of Shri Mitesh G. Bhangdiya: Thus; the Ld. AO had inferred that the Bhangdiya group by adopting such modus-operandi had inflated the expenditure by making cheque payments and subsequently withdrawing the cash from the bank accounts of the sub- contractors who; according to the AO; are merely name lenders; The contention of Shri Mitesh Bhangdiya was that the cash withdrawn from the account of the subcontractors which 4 1.7,4, No.154/N2g/2016 Assessmenlyear 2007-08 is Found reflected In the diaries was kept with Late Shri Gotulalji Bhangdiya , father of Shri Mitesh Bhangdiya by Such sub-contractors which was being issued to various sites for the use of subcontractors a5 per the requirements at the site Further that the money kept by sub-contractors was returned to them or through any of the intermediaries in the course of handling of cash. The Assessing Officer however, declined to agree with the explanation filed by the appellant and has held that all the Zl sub-contractors examined by him are merely name lenders and the amounts paid to them under the head sub-contracts are bogus payments, therefore; the corresponding receipts by way of withdrawals from the bank accounts f the subcontractors 15 liable to be added 35 unaccounted incone In the hands Qf various concerns Of Bhangdiya group In various assessment years of the block period in proportion to the cheque payments made by such group concerns; 9.2 In the case of Bhangdiya group, the assessments under section 1534 Of IT Act 1961 have been framed for assessment years 2006-07 to assessment year 2012-13. The nature of activity being execution of government contracts was the same during all the assessment years. In assessment year 2006-07, the nature of work executed For Vidarbha Irrigation Development Corporation remains the Same 35 in the case Of assessee for subsequent assessment years. The sub contractors who have executed the works are also similar in the various assessment years. I 9,3 The A,O. has observed that the Sub contractors in the case of Bhangdiya group are name lenders and bogus. In this regard, it is significant to mention that the Sub contractors including the appellant have been assessed by the ACIT, Central Circle-2 (1}, Nagpur who is also the A.